This project has two main objectives. First, we propose to estimate the optimal level of alcohol taxation taking account of both externalities (e.g., the risk to other road users from drunk drivers, the burden on public or group medical services from alcohol-induced illness) and the appropriate balance between excise taxes and other taxes in financing the government's budget. This will involve developing a conceptual model of optimal alcohol taxes as part of the broader fiscal system, using household data to develop econometric estimates of certain behavioral responses to alcohol taxes that are necessary to implement the optimal tax model, and updating and synthesizing available evidence on external costs and other parameter values. Second, we will examine opportunities for improving the allocation of the tax burden between different kinds of alcoholic beverages and between alcohol taxation and drunk driver fees. This will involve using the theoretical model to estimate the optimal tax rate on individual alcoholic beverages, for a given amount of total alcohol tax revenue, and estimating economic gains from shifting some of the alcohol tax burden onto drunk driver penalties. The net benefits to society from these tax reforms will be compared with those from a proportionate increase in all existing alcoholic beverage taxes, and their implications for alcohol consumption, deaths and non-fatal injuries/illness avoided, and incidence of alcohol-related traffic accidents, will be studied in order to prioritize among different options for reform. Furthermore, we use the conceptual framework to explain differences in tax rates between the United States and four other OECD countries by assessing factors that might justify the United States setting lower excise taxes than in other countries (e.g., lower government revenue requirements) and factors that might justify higher taxes (e.g., the higher incidence of drunk driving in the United States). [unreadable] [unreadable]